Economists say that excess capacity in monopolistically

Economists say that excess capacity in monopolistically

Subject: Economics    / General Economics   
Question

Problem #:

1. Economists say that excess capacity in monopolistically competitive markets is "the cost to society of variety”. Explain why.

2. If a perfectly competitive firm is producing a rate of output for which price exceeds MC and average total cost, what should the firm do to increase its profit? Explain with a graph

Problem #:

This problem involves two firms who are engaged in Cournot competition. They face an inverse demand function given by P = 57 – Q, where Q is the amount of total output produced by the two firms. Each firm has a constant marginal cost c=3. There are no fixed costs.

1. Find the reaction functions of both firms and then find the symmetric equilibrium price and quantities.

2. Find the price and quantity under monopoly

Problem #:

Suppose there are 6 firms in an industry. The largest firm has sales of $100 million and each of the other firms has sales of $20 million.

a. What is the Herfindal-Hirshman Index of this industry? Show your work.

b. What is the 4-firm concentration ratio for this industry?

Figure1

1. Refer to Figure 1 for a monopolistically competitive firm. In the long run, this firm will charge a price of ________ and produce an output of ________.

A) P3; Q4.

B) P4; Q3.

C) P4; Q4.

D) P2; Q1.

2. Refer to Figure 1 for a monopolistically competitive firm. If the firm currently faces Demand1 and MR1, then it will earn:

A) A positive economic profit and firms will enter the industry.

B) A positive economic profit and firms will exit the industry.

C) A negative economic profit and firms will exit the industry.

D) Zero economic profit and neither entry nor exit will occur.

3. In monopolistic competition, a firm should increase output whenever:

A) Marginal revenue is below marginal cost.

B) Price is above marginal cost.

C) Price is below marginal revenue.

D) None of the above.

4. Which of the following is true about a monopolistic competitor?

A) It maximizes profit at the point where MC=MR.

B) It produces less output than a perfectly competitive firm, ceteris paribus.

C) It charges a higher price than a perfectly competitive firm, ceteris paribus.

D) All of the above.

5. In the short run, a monopolistically competitive firm:

A) May make economic losses, but will make zero economic profits in the long run because of free entry and exit.

B) May make profits just as it does in the long run, because firms can enter easily.

C) Always produces at a rate at which average cost equals price.

D) Makes profits just as it does in the long run because entry is blocked

13. When oligopoly firms collude to raise prices:

A) Each firm benefits, but society loses.

B) Both the colluding firms and society benefit.

C) Everyone is eventually a loser.

D) Only the price leader benefits while other firms and society lose.

14. If new firms enter a monopolistically competitive market, the demand curve for the entire market will:

A) Shift to the left.

B) Shift to the right.

C) Remain unchanged.

D) Become kinked.

16.Sky-High Skywriters raises its price and the other four firms in the industry raise their prices in response. Coordination in this industry is accomplished by:

A) Predatory pricing.

B) Retaliation.

C) Price fixing.

D) Price leadership.

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Use the figure below to answer the following four questions:

17. Refer to the figure above for a monopoly. The profit-maximizing level of output is:

A) 11 units.

B) 14 units.

C) 20 units.

D) 28 units.

18. Refer to the figure above for a monopoly. The profit-maximizing monopolist will charge a price of:

A) $60.

B) $70.

C) $110.

D) $120.

19. Marginal revenue and marginal cost at the profit maximizing level of output are approximately:

A) $60.

B) $70.

C) $110.

D) $120.

20. Refer to the figure above for a monopoly. At the profit-maximizing rate of output, total profit is:

A) $980.

B) $840.

C) $1,680.

D) $660.

21. A monopolist will find that its marginal revenue curve:

A) Is the same as its demand curve.

B) Lies above its demand curve

C) Lies below its demand curve .

D) Is vertical

22.Which of the following market structures is composed of many firms producing close substitutes that are differentiated according to consumers?

A) Perfect competition.

B) Monopolistic competition.

C) Oligopoly.

D) Monopoly.

23. Suppose there are 3 firms in a market. The largest firm has sales of $40 million and each of the other two firms has sales of $20 million. The Herfindal-Hirshman Index of this industry is:

A) 2,850.

B) 3,750.

C) 2,400.

D) 3,125.